Korean banks raise mortgage rates despite looming rate cut

South Korean banks are raising mortgage rates again as the government strives to curb household debt growth that grew at its sharpest pace in three years amid growing expectations of an interest rate cut.

Banks will be increasing home loan interest rates by 0.05-0.20 percentage point starting on Thursday. As recently as late June to early July, they bumped up home loan rates by a similar margin.

Kookmin Bank is slated to up interest rates on mortgages and housing rental deposit loans by 0.20 percentage point on Thursday, according to banking industry officials.

It will mark the third time for the country’s largest lender to raise home loan rates this month alone. On July 3, it hiked mortgage rates by 0.13 percentage point, followed by a 0.10-0.20 percentage-point increase on household rental deposit rates on July 11.  

Woori Bank will be increasing two- to five-year mortgage and housing rental deposit rates by 0.15-0.20 percentage point on July 24, after lifting the rates 0.10 percentage point earlier this month.

Shinhan Bank will raise mortgage rates by 0.05 percentage point on July 22.

This series of home loan rate hikes comes as the government steps up warnings against the rapid pace of household debt growth that has fueled housing price rises.

But the lending rate increases run counter to a looming interest rate cut flagged by Bank of Korea (BOK) Governor Rhee Chang-yong last week. Rhee was cautious about its timing, however, citing household debt growth and rising home prices.

Last week, the BOK kept interest rates unchanged at 3.50% for the 18th straight month.

Market participants are pricing in a rate cut as early as October with consumer inflation holding around the government’s target of 2%.

Home loans, including housing rental deposit loans, expanded by 26.5 trillion won ($19 billion) to 1,115.5 trillion won ($807 billion) in the first half of this year.

That represented the sharpest pace of growth for a six-month period since the 30.4 trillion won gain in the first half of 2021, when housing prices spiraled upward.

To keep mortgage loan growth in check, financial authorities are inspecting the country’s top five lenders, including Hana Bank and Nonghyup Bank, as well as internet-only lender Kakao Bank, about whether they complied with the debt-service coverage ratios to assess borrowers’ debt servicing capabilities.

Kim Byung-hwan, nominee for chairman of the Financial Services Commission, said on Tuesday, in a written answer to questions prepared for a parliamentary hearing, that the regulatory body will put household loan growth under control in a preemptive manner.

WIDER LENDING MARGINS

Despite the lending rate hikes, domestic banks are not increasing savings account interest rates.

Industry watchers have noted that the government move aimed at curbing household loan growth would widen the gap between deposit and lending rates, bolstering banks’ interest income.  

Write to Bo-Hyung Kim at kph21c@hankyung.com
 

Yeonhee Kim edited this article